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City Chic announces capital raising, acquisition and FY20 update

City Chic (ASX: CCX) shares have gone into a trading halt so it could announce a capital raising, an acquisition and it released some FY20 numbers.

City Chic’s tagline is that it’s leading a world of curves. It’s a retailer of plus-size women’s apparel, footwear and accessories.

City Chic capital raising and acquisition

City Chic announced that it has been selected as the ‘Stalking Horse’ bidder for the eCommerce assets of Catherines from the Ascena Retail Group which has filed for bankruptcy.

According to City Chic, Catherines is a well recognised US-based specialty retailer of plus-size apparel targeting ‘mature value-conscious women’.

In the 12 months to April 2020 it made online sales revenue of US$67 million, which is one third of Catherines total sales. However, City Chic expects a reduction in online sales due to the closure of the 300 stores as well as due to going into bankruptcy.

City Chic has entered into a binding asset purchase agreement, as long as it’s the highest bidder at the auction and and it’s approved by the US bankruptcy court. There’s no guarantee it will win the auction. It may need to bid higher than the current bid of US$16 million.

The company is using the current difficult market conditions to expand its collection of brands to grow its customer base and geographical presence.

Management believe it’s well positioned to leverage its lean, customer-centric model to drive scale as it continues to grow its global online footprint.

The capital raising

To fund the acquisition, the company is doing a capital raising. It’s looking to raise $80 million in a fully underwritten placement to institutional investments.

The placement price is $3.05 per share, a 4.7% discount to the last closing price.

Existing shareholders will also get the chance to apply for up to $30,000 of new shares each.

FY20 update

The retailer said that trading has continued to improve since 25 May 2020 with most of the store network opening up again. The Avenue website continues to be resilient.

City Chic said that FY20 sales revenue was $194.5 million, which represents 31% total sales growth and comparable sales growth of 0.4%.

Australian and New Zealand sales fell by 4.8% due to COVID-19 impacts and closures. US online websites (City Chic USA, Avenue and Hips and Curves) contributed $65.2 million, up from $10.7 million in FY19.

Unaudited underlying EBITDA (click here to learn what EBITDA means) came in at $26.5 million.

The company said that it had a strong balance sheet with net cash of $3.9 million and a debt facility of $40 million which matures in March 2023.

Summary

I believe that City Chic is an exciting ASX growth company and definitely worth watching with its high level of online sales and sales growth. The raising will be enough to potentially fund future acquisitions.

As long as these are smart acquisitions, at a good price with good growth potential, I think it’s a good move. I’d be happy to buy some shares for the long term on the market and particularly in this raising, if I owned shares. These growth shares are also worth watching.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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